E commerce companies set to collect tax from sellers

Ecommerce platforms such as Amazon, Flipkart, and Myntra will from October 1have to withhold tax from payments made to suppliers.

The tax deducted at source (TDS) and tax collected at source (TCS) provisions under the goods and services tax (GST) have been notified to be effective from October 1. The GST Council had deferred the implementation of the provision first for a year from July 1, 2017 till June 30, 2018. It was again put off till September 30 after industry expressed concerns on increased compliance burden.

The TDS provision mandates that notified entities such as ecommerce platform have to deduct up to 1% state GST and 1% central GST on intrastate supplies of over Rs 2.5 lakh. In the case of interstate supplies of over Rs 2.5 lakh, TDS will be 2% of integrated GST.

In the case of ecommerce companies, it means that when they make payments to suppliers for goods sold on their platforms, they have to collect 1% tax and deposit this with the government. These provisions are aimed at checking tax evasion as TDS/TCS will leave a trail of transactions. The supplier can adjust this amount against the final tax liability.

Ecommerce firms had represented to the government against the move expressing concerns about TCS provisions, saying it will add to their compliance burden and create cash flow issues for small and medium-sized enterprises.

Although TDS/TCS can be claimed as a refund, industry feels it could lead to working capital issues.

Tax experts say the government needs to ensure easier refunds.

“Industry fears that TCS might have a negative impact on their business but their demands of doing away with it have not found favour with the government,” said Pratik Jain, national leader, PwC.

“It is not yet clear whether ecommerce companies will have to take registration in each state from where vendors are supplying or a single centralised registration would suffice.”

Jain said it is also important to ensure that vendors who are subjected to TCS get a seamless credit or refund, so that it doesn’t become a working capital issue for them. They also said the GSTN should be ready with relevant modules for efficient compliance.

“The TCS provisions which have been notified will require the ecommerce operators to collect the GST for all transactions from the vendors at the specified rate, increasing the compliance all around,” said Bipin Sapra, partner at EY. “Similarly, the TDS provisions, which require the government bodies and public sector undertakings to deduct tax at source, will require due reconciliation and compliance. It is essential that GSTN is ready with the relevant modules for these compliances to provide an efficient experience.”